TSMC Market Dominance and AI Growth Potential

Semiconductor stocks remain at the center of global markets in 2025 as demand for advanced chips shows no sign of slowing. These components power everything from smartphones to data centers, and the surge in artificial intelligence has added a new layer of urgency to the industry’s growth.

According to the Semiconductor Industry Association, global chip sales reached $48.6 billion in July 2025, an increase of 12.5% compared with the same month last year. This growth has reinforced the importance of leading foundries and chip designers to both the technology sector and the broader economy. 

Investors are watching these companies closely, seeking stable performers that can capture long-term demand while navigating geopolitical and supply chain challenges.

Among the major players, Taiwan Semiconductor Manufacturing Company, better known as TSMC, has drawn significant attention. As the world’s largest contract chipmaker, it supplies advanced semiconductors to top firms such as Apple, Nvidia, and AMD. 

Analysts argue that its scale and leadership in advanced nodes make it one of the most important technology companies globally, and potentially one of the strongest stocks in the sector.

Industry Tailwinds & Key Risks

Strong demand from artificial intelligence and data centers is pushing the semiconductor sector forward. According to SEMI, global production capacity for chips using process nodes of 7 nanometers or smaller is expected to grow by 69% between 2024 and 2028. That would raise output from 850,000 wafers per month in 2024 to about 1.4 million wafers by 2028.

Gartner estimates global semiconductor revenue will reach US$705 billion in 2025, driven largely by chips for AI and data center applications. In 2024 semiconductor revenues rose by 18.1% from 2023.

On the risk side there are several pressures. Geopolitical tension is one. Export controls, tariffs, and territorial policies are complicating operations for companies with facilities or customers in Taiwan, China, Korea, and the United States.

Supply chain constraints remain a concern. Materials, equipment, and skilled labor are harder to source in some regions. High costs and logistical delays can push back production or raise prices.

Another risk comes from industry cyclicality. Demand for chips tied to consumer electronics, smartphones, PCs, and automotive sectors can ebb and flow depending on economic conditions. Even as AI demand grows, weak demand in other areas can weigh on overall growth and margins.

TSMC as One of the Best Picks

Taiwan Semiconductor Manufacturing Company (TSMC) holds a leading position in the foundry market based on advanced-technology demand. In the second quarter of 2025 TSMC captured about 70.2% of global foundry revenue, generating over US$30 billion, according to TrendForce. That is a record market share.

A large share of TSMC’s wafer sales now comes from advanced process nodes. Nearly 74% of wafer revenue in Q2 2025 was from 7-nanometer (nm) and smaller technologies, with the 3nm node alone contributing about 24%. These nodes are essential for products requiring high performance and energy efficiency, such as AI accelerators, high-performance computing (HPC) servers, and premium mobile chips.

Customers like Apple, Nvidia, AMD, and Qualcomm rely on TSMC for their most demanding chip designs. TSMC’s ability to provide advanced packaging technologies such as CoWoS (Chip-on-Wafer-on-Substrate) gives it an edge by integrating several chiplets into more powerful multi-die systems. That capability is increasingly important for AI workloads.

Geographical expansion also strengthens TSMC’s position. Its fabs in Arizona are being developed faster than scheduled, and additional facilities in Japan and Germany are in progress. This spread helps reduce dependency on Taiwan and mitigate risks from supply chain constraints and geopolitics.

Financial metrics show strength. TSMC’s margins remain high even as overseas and new fabs begin operation. In Q1 2025 the foundry posted gross margins near 59% and operating margins close to 49%, despite rising capital expenditure.

Given its leadership in process technology, strong customer relationships, and scale of operations, TSMC combines growth potential with relative stability. For investors seeking exposure to semiconductor demand from AI, HPC, and premium mobile devices, TSMC appears among the most defensible picks in the sector.

Comparison & Alternatives

Several semiconductor and equipment companies present strong cases, each with different strengths and risks, when compared with TSMC.

Nvidia (NVDA) remains a leader in AI compute and data center demand. In its second quarter of fiscal 2026, Nvidia reported $46.7 billion in revenue, up 56% from a year earlier. Its Data Center business, which accounts for the bulk of its sales, showed similar year-over-year growth. 

These figures show Nvidia has both momentum and customer pull in AI workloads. However Nvidia depends heavily on its GPU ecosystem and is exposed to export regulation risks especially with China.

ASML (ASML Holding NV) operates in the semiconductor equipment side, particularly in lithography systems used to manufacture advanced nodes. In Q2 2025 ASML posted €7.7 billion in net sales, up about 23.2% year-over-year, with gross margin of 53.7% and net income of about €2.3 billion. 

ASML benefits from capital expenditures by foundries like TSMC, Samsung, and Intel. But its growth can lag if customers delay equipment purchases, or if regulation or supply chain issues hamper tool deliveries.

Broadcom and AMD are also alternatives. Broadcom is expected to gain market share in the AI chip market as companies look for more cost-efficient or custom silicon solutions. AMD is expanding in AI server chips with its MI series, though its scale is smaller than Nvidia’s. 

According to a recent projection, Broadcom could capture about 14% of a $475 billion AI chip market by 2030, while AMD might reach just over 4% under current paths.

Each alternative offers a different risk-return profile. Nvidia is high growth but more volatile. ASML depends on others’ investment cycles. Broadcom and AMD offer upside but possibly more risk or slower growth compared with TSMC.

Final Note

All strong investment cases come with caveats, and TSMC is no exception.

One major risk is geopolitical exposure. Much of TSMC’s advanced manufacturing remains in Taiwan, making it sensitive to tensions between China and Taiwan, or shifts in U.S. policy toward semiconductor exports. Analysts frequently cite that such geopolitical uncertainty is baked into TSMC’s risk premium.

Currency movements add another layer of uncertainty. TSMC’s revenues are largely in U.S. dollars, while many of its costs are in New Taiwan dollars. Appreciation of the local currency could reduce margins. 

On valuation, some models suggest TSMC is trading rich relative to its future growth prospects. One valuation approach places fair value at US $118.4, which implies the stock may be overvalued today. Others argue the valuation already reflects high expectations, leaving limited upside.

That said, TSMC’s fundamentals are compelling: scale, advanced technology leadership, and a broad set of high-end customers provide resilience. Expansion of fabs outside Taiwan may help distribute risk over time.

Final take: TSMC stands as one of the stronger semiconductor picks for investors who accept higher risk. It is not a low-volatility play. Its potential is tied to continued AI and high performance computing demand, but its valuation already assumes strong execution and favorable macro trends. 

For those willing to manage geopolitical and currency exposure, TSMC offers a blend of growth and technological defensibility.